Household employees? Beware IRS requirements

By Joseph B. Jaap, Providing legal services to business owners

In recent years, several presidential cabinet-level appointees were disqualified for failure to pay their nanny taxes. The rules can be complicated, and compliance can be confusing. Whether you consider a person to be your “employee” or an “independent contractor” may not be so simple, and could be subject to review by the IRS.

If you pay a nanny for child care in your home, or pay workers for other home services who are your employees, then you may have tax withholding and reporting requirements to the IRS. This applies to those workers you employ and pay directly – but it typically does not apply if you pay a service company for those services. IRS Publication 926 discusses the requirements, and you need to provide sufficient information to your tax preparer. Information is available at

In addition to federal requirements, and verifying that your employee is legally permitted to work in the US, there also can be state reporting requirements and taxes. All that tracking, verifying, withholding, reporting, record-keeping, and payment to the IRS and the state, and providing W-2 and other forms to your employee, can be simplified using a Payroll Service company for a modest fee. They track the latest state and federal regulations and guidelines, make the required filings and payments, and can keep you out of trouble. If you have any questions, contact BPBS attorney Joseph Jaap at 533-2037. Don’t incur a reporting penalty, or disqualify yourself from a future cabinet appointment!